Social Security: 5 Ways Millennials Should Prepare for Social Security Cuts

Social Security’s cash reserves are on track to be fully depleted by 2037, well before millennials will reach the standard retirement age. Although there are measures that will likely be put into place to prevent this from happening, it’s always better to be prepared for the worst — which means millennials may want to plan for a retirement that doesn’t rely on Social Security as a source of income.

A 2022 GOBankingRates survey found that some millennials are already saving for retirement with this in mind — 28% of younger millennials and 32% of older millennials said they are not counting on Social Security to fund their retirement. However, similar percentages — 29% of younger millennials and 31% of older millennials — said they are planning to use Social Security to account for more than half of their income in retirement.

Planning to rely on Social Security based on the system in place today is a gamble. Jeff Rosengarten, CFP, principal at Homrich Berg, noted that if Social Security does exist by the time millennials retire, it will likely look different from the program in place today.

“The start dates could get pushed back, more of your income could get taxed along the way, more of your benefits could be taxed in retirement and there may be more means testing,” he said. “If millennials are 25-plus years off from receiving benefits, I would plan as if you won’t receive much, if anything, to be safe.”

Here’s how millennials can prepare for a retirement with reduced Social Security benefits or even without Social Security income at all.

The earlier you start saving for retirement, the better off you will be.

“Time is the biggest advantage for savers, especially millennials,” said Andrew Meadows, SVP at Ubiquity Retirement + Savings. “The younger you are when you start saving, the more time works in your favor due to the magic of compound interest. The best thing to do is to take action, even if you don’t have a clear plan as of yet.”

If your company offers a 401(k) or 403(b) plan, be sure you take advantage of this savings opportunity. If your employer offers a matching contribution, contribute enough to get the full match percentage.

“This is free money,” Rosengarten said.

Those with a longer time horizon before retirement — like millennials — can afford to take some risks with their investment mix.

“In general, we believe a millennial’s retirement account should be aggressively invested, if they can stomach the volatility and risk of loss,” Rosengarten said. “These retirement accounts hopefully won’t be touched for 25-plus years, so they have time to potentially recover if we see prolonged downturns in the meantime. Consider investing the bulk of the retirement accounts in diversified, low-cost index funds, since it is very difficult to consistently beat the market over time. If you need to trade individual stocks to ‘scratch an itch,’ only do this with a small portion.”

For those looking for a low-risk investment option, Doug “Buddy” Amis, CFP, president, CEO and owner at Cardinal Retirement Planning, Inc., recommended Series EE bonds.

“The high rates on Series I bonds can fall with inflation, but Series EE bonds are guaranteed to double every 20 years,” he said. “It’s a great place for savers to check out after higher priorities.”

When you enroll in a company-sponsored plan, contributions will be made automatically from each paycheck. If you don’t have this option, you should automate contributions on your own.

“Set up an automatic transfer to move the amount you want to save each paycheck or each month, and automatically invest this so you don’t have to think twice about it,” Rosengarten said.

“Lifestyle creep — when an individual’s increased income leads to increased discretionary spending — is a real thing, especially for millennials,” said Steve Sexton, CEO of Sexton Advisory Group. “Higher rents, mortgages, living expenses and lifestyle preferences can ultimately impact your larger financial goals, like saving for retirement.”

To ensure you stay on track with your retirement savings goals, it’s important to ensure you stick to a budget so you are always living within — and ideally below — your means.

“Hold yourself accountable by checking on your finances quarterly to make sure you’re on track,” Sexton said.